We find that shocks to the equity capital ratio of financial intermediaries--Primary Dealer counterparties of the New York Federal Reserve--possess significant explanatory power for crosssectional variation in expected returns. This is true not only for commonly studied equity and government...

We develop a structural credit risk model to examine how the interactions of liquidity and default risk affect corporate bond pricing. By explicitly modeling debt rollover and by endogenizing the holding costs via collateralized financing, our model generates rich links between liquidity risk...